Five Common Reasons Why Closings Are Adjourned
Whether it’s a complex commercial transaction or a typical residential purchase, closings should be exuberant and stress-free experiences for all parties involved. After all the contract negotiations, compromises, e-mails, texts, phone calls, it’s finally time to put pen to paper and close the deal. However, it is important to be aware of some common pitfalls that can bring a closing to an immediate halt and perhaps force an adjournment. Some of these problems are more practical rather than legal; but regardless, they are important to be prepared for so buyer(s) and seller(s) do not leave the closing in stunned silence. Here are five situations to be wary of when getting ready to close.
1. An executor or trustee gives a power of attorney to a third party
New York Estate law states that “The duty of a fiduciary is personal and cannot be divested by delegation.” In other words, an executor, trustee or administrator has been entrusted by a principal to take care of his/her assets and act in the principle’s best interest. He/she did not entrust their assets to this third party. Therefore, a fiduciary granting power of attorney to a third party would result in an adjournment unless the original fiduciary or grantor to the trust is in close proximity to the closing and can get there in a reasonable amount of time. When dealing with administrators, executors, heirs, trustees, etc., you can never be too careful!
2. Knowing Who’s Who – Executors and Devisees
One scenario occurs in this category when a probated will results in Letters Testamentary issued to two executors, but only one attends the closing to execute the deed. This should be very straightforward. If there are two fiduciaries, the actions must be unanimous, while if there are three or more, a majority is required. Therefore, if there are two executors appointed by the will, they both must act. If there are more than two, the majority must act. We already know that one of the executors cannot issue a power of attorney to the other. Therefore, in order for the closing to continue the other executor must be present.
Scenario two is when a probated will names a specific devisee, but the executor attends the closing to execute the deed instead. Once a specific devisee is named, the executor has lost the power of the sale. Because of this, only the specific devisee can convey the real property. According to the EPTL (Estates, Powers and Trust Law), the executor has power “except where such property or any estate therein is specifically disposed of.” Once a will creates a specific devisee and says “I give my home to John Doe”, a specific devisee has been established and the executor cannot convey the property. Bottom line – the closing must be adjourned unless the specific devisee is present.
3. No Letters Testamentary and no Heirship Affidavits
One example of a problem occurs when the executor of a will that is not probated arrives at closing to execute the deed. This person has no standing in the transaction. A valid fiduciary is someone that has received letters to administer the estate of a decedent; therefore, an executor needs Letters Testamentary granted to dispose any part of the estate. These are documents issued by a court that authorizes the executor of a will to take control of a deceased person’s estate. Without a probated will, you need all the heirs of the testator to either have executed an Heirship Affidavit or have them all present at the closing to do so, or obtain and present original Letters Testamentary. If the Heirship Affidavit is executed or original Letters Testamentary are presented, then the closing can go forward.
Another potential pitfall that can occur is if the intestate decedent owner’s son/daughter, who lives in the house, arrives at closing to execute the deed. In a situation like this, either an administrator or all the heirs must convey the property. Many times, someone claims that a sibling is not interested in the property. Legally however, a sibling would have 50% interest in it. Typically, title companies will not put simple estates through the time and expense of an administration proceeding, and will once again accept an affidavit of heirship. In fact, the court has ruled per Matter of Bell (144. Misc. 2d 195 N.Y. Misc 1989) that it will not entertain an administration proceeding in simple single asset cases. However, in cases where there are no affidavits, the closing cannot continue unless all the heirs are present to execute the deed.
4. Clearing a Bankruptcy Debt/Lien
A seller with a docketed judgment against him/her that has been discharged in bankruptcy believes he/she can sell his/her real property free of that judgment. However, there are two parts to a bankruptcy judgment, debt and lien; and bankruptcy only discharges the debt portion. This means that the lien is still remaining on the property, and could cause an adjournment to the closing.
When the title company discovers a discharge in bankruptcy, they initially take a position that even though the property has been discharged in bankruptcy, there is still a lien on the real property. This is because bankruptcy only relieves a debtor from his personal obligation to repay the discharged debts. Therefore, the bankruptcy remains a lien against the debtor’s real property. The debtor needs to take steps in order to avoid the lien by making an appropriate and separate application under federal bankruptcy law. In order to omit the docketed judgments, the title company will then require from the seller either an Order Avoiding Lien in the original bankruptcy proceeding or an order pursuant to section 150 of the Debtor and Creditor Law directing the clerk to mark the judgment discharged.
5. A religious corporation arrives at closing without a Supreme Court order authorizing the sale
In simplest terms, this means that the conveyance is voidable. In addition to court approval, the consent of 2/3 of the directors must be obtained for the sale, purchase, lease and mortgaging of religious property. Religious Corporation Law states that a religious corporation shall not sell, mortgage, or lease for a term exceeding five years any of its real property without applying for and obtaining leave of the Court. This extends to all religious property that is acquired, not strictly places of worship. Therefore, all mortgages of real property owned by a religious corporation require a court order (except purchase money mortgages). Without exceptions, a title company will not insure a conveyance or a mortgage by a religious corporation that is absent a court order. In a situation like this, the closing will be adjourned.
In quick summary, it doesn’t “go without writing” – No one wants to deal with the rescheduling complications and the potential adjournment costs that can result from an adjournment. Therefore, the most important thing to remember is to be meticulous and vigilant so the closing can go as smooth as possible and all parties come away satisfied. And make sure that you have a qualified, licensed title agent to rely on.